Charles Knight’s Legacy Lives on at Emerson

The recent passing of Charles (Chuck) Knight (on Sept. 12) marks another end to a style of leader businesses will not likely see again for some time. In 1987, Chuck was named Chief Executive magazine’s second Chief Executive of the Year by his peers in a process that is now in its 32nd year. When he was named CEO of Emerson Electric (now simply Emerson) at age 37 in 1973, he became the youngest person to lead a billion-dollar company. He retired nearly three decades later and had helped convert Emerson into a company that had more than $15 billion in annual revenue.

During Mr. Knight’s 27-year tenure, one of the longest in business history, Emerson achieved its unprecedented record of earnings and dividends growth. He led a company with a dozen divisions to more than 60 businesses. International sales grew from 12% of the total to nearly 40%. He retired in 2000 after 27 years as CEO, remaining chairman until 2004.

Like General Electric’s Jack Welch, with whom he was sometimes compared, Knight was not only long-tenured, but closely identified with a rigorous systems approach to running his company. Among other accomplishments, he was renowned for sustaining Emerson’s remarkable record–43 straight years of earnings increases. At the time, no other New York Stock Exchange company could make that boast. He had a tough act to follow. His predecessor had compiled a record of 16 unbroken years of earnings-per-share gains. Many questioned whether he could maintain the streak.

In 1987, Emerson Electric was a $5 billion St. Louis-based manufacturer of electrical and electronic products. Twice nominated by Chief Executive readers as a finalist, Knight emerged the unanimous choice of that year’s panel of judges to be the 1987 Chief Executive of the Year. The reason, as summed up by GM’s Roger Smith, a panel member and the previous year’s award recipient, was that in an era of tough global competition, “Knight’s performance is amazing.”

Without much fanfare Emerson, had racked up 29 consecutive years of increased earnings per share (from 1956 to 1986 the growth rate averaged 12.1%), and 30 consecutive years of increased dividends per share—and this with an average return of stockholder’s equity (17.1% to 20% over the last 10 years) well above the S&P average.

But profits alone didn’t assure Knight his laurels. “Consider the kinds of tough, unglamorous businesses he’s operating,” observed Robert W. Lear, a veteran selection committee judge, and former CEO of F&M Schaeffer. “Even good managers would have had to endure downswings due to the economy of foreign competition.” Knight, unlike Lee Iacocca or Jack Welch, was not a household name, but his peers couldn’t help being impressed by his sustained record of performance. In other words, the judges turned not to a celebrity leader, but to a professional’s professional.

Knight himself ascribed his success at Emerson to its “management process,” a system of continuous—some might say relentless—planning, communication and control. The hallmark of this process was the pursuit of what the company called, “best cost”—not the lowest cost but the lowest cost in a total solution systems environment, something which is fairly standard today.

As CEO of Emerson, he was demanding—it was not unusual to have all day Saturday meetings and to be called at home for another drilling. He saw this as a means to meet Emerson’s brand promise: to bring together technology and engineering to create solutions for the benefit of its customers. It didn’t hurt that, at 6’2”, he was tall, with good looks. The former Cornell University football tight end had an intense personality, but was personable and socially charming.

But even admirers sometimes pointed out certain weaknesses. Consistency and financial strength count for a great deal on Wall Street. But Knight’s Emerson paid a price for this consistency: In later years, it wasn’t much of a growth company. It made compressors and washing machine motors. During those 43 years, reluctant to migrate from things electric to things electronic, Emerson almost entirely missed the explosive growth in such fields as semiconductors and telephony. The faster growth occurred near the beginning of his tenure.

Also, having emerged from his father’s management consultancy, Lester B. Knight Associates, before joining Emerson, Knight was said to have indulged the use of consultants. Bain & Co., for example, had embedded itself in Emerson’s management process beyond the original scope of its mandate; perhaps partly as a result of Knight’s close personal relationship with Bain founder, Bill Bain.

Knight’s mentee David Farr succeeded his legendary boss in 2000 after a grueling competition worthy of Jack Welch’s horserace that selected Jeff Immelt in 2001. Although not as prolific as GE, Knight’s system produced other top business leaders such as vice chairman Al Suter and Emerson president Jim Hardimon, who would later be tapped to become president and ultimately CEO of Textron.

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